Matt Oakley, Head of Enterprise, Growth and Social Policy, Policy Exchange Deven Ghelani, Senior Researcher, Centre for Social Justice Mike Brewer, Deputy Director, Institute for Fiscal Studies Professor Roy Sainsbury, Research Director, Social Policy Research Unit, University of York Dr Patrick Nolan, Chief Economist, Reform Chris Goulden, Policy and Research Manager, Joseph Rowntree Foundation Paul Bivand, Head of Analysis and Statistics, Centre for Economic and Social Inclusion Kate Wareing, Director of UK Programme, Oxfam Andy Rickell, Chief Executive, Vassall Centre Trust, and Member of Personal Independence Payment Objective Assessment Development Group, and Equality 2025 Vicki Nash, Head of Policy and Campaigns, Mind Public Bill Committee  Tuesday 22 March 2011   (Morning)  [Mr James Gray  in the Chair] 10.30 am

Public Bill Committee

[Mr James Gray in the Chair]

James Gray: I welcome hon. Members to what looks to be a fairly substantial marathon of sittings lasting until 24 May. With 140 clauses and 13 schedules, it will be a magnificent effort. It is nice to see such a tiny Committee ready to deal with it.
To deal with a couple of housekeeping points before we begin, I take a rather old-fashioned view of dress sense. If people are uncomfortable, they may of course make a point of order and ask to remove their jackets, but otherwise I think that we should maintain the same dress sense in Committee that we do in the main Chamber, if that is all right by everyone. Mobile phones and pagers must be turned off, and other electronic devices may not be used, pending Thursday’s report by the Procedure Committee, which might or might not change that view. For the moment, electronic devices—apart from mobile phones, and pagers, on silent mode—should not be used in Committee.
On amendments, as a general rule, we do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period for Public Bill Committees is three working days between tabling and the sitting, so amendments should be tabled by the rise of the House on Monday for consideration on Thursday and by the rise of the House on Thursday for consideration on Tuesday. Any less notice will not be acceptable.
Not everyone is familiar with the process of taking oral evidence in Public Bill Committees, which is what we are doing today, so I will explain briefly how we intend to proceed. First—I suspect that this will be largely formal, although we will see—the Committee will be asked to consider the programme motion discussed in the Programming Sub-Committee last Thursday, which is on the Order Paper with one amendment. Debate is permitted, if anyone wants to do so, and may last for up to half an hour. If not, we will proceed to a motion to report written evidence and then a motion to permit the Committee to deliberate in private before the oral sessions. That will happen shortly, and we will ask the public to leave and for the TV cameras to be switched off.
Assuming that the programme motion is agreed to, we will then move into a private session, in which Committee members can discuss how we intend to proceed with the evidence-gathering part of our work, after which the witnesses and public will be invited back into the room. We will then spend this morning and afternoon, and indeed Thursday morning and afternoon, taking oral evidence before moving on to the more formal part of our deliberations, starting from next Tuesday.

Motion made, and Question proposed,
TABLE

Date

Time

Witness
Tuesday 22 March
Until no later than 12 noon
Policy Exchange; Centre for Social Justice; Institute for Fiscal Studies; Professor Roy Sainsbury (University of York); Reform
Tuesday 22 March
Until no later than 1 pm
Joseph Rowntree Foundation; Centre for Economic and Social Inclusion; Oxfam; Personal Independence Payment Objective Assessment Development Group (and Equality 2025); Mind
Tuesday 22 March
Until no later than 4.45 pm
Anne Spaight, former Chair of Disability Living Allowance Advisory Board; Essex Coalition of Disabled People
Tuesday 22 March
Until no later than 5.15 pm
People First; National Centre for Independent Living
Tuesday 22 March
Until no later than 6.15 pm
MacMillan; Scope; Community Links; TUC
Tuesday 22 March
Until no later than 6.45 pm
Low Incomes Tax Reform Group; Citizen’s Advice Bureau
Thursday 24 March
Until no later than 9.30 am
Social Security Advisory Committee
Thursday 24 March
Until no later than 9.50 am
Carers UK
Thursday 24 March
Until no later than 2.00 pm
Child Poverty Action Group; Gingerbread; Fatherhood Institute; Working Families
Thursday 24 March
Until no later than 2.45 pm
Women’s Budget Group; Centre for Separated Families; Family Action
Thursday 24 March
Until no later than 3.15 pm
Local Government Association; London Councils
Thursday 24 March
Until no later than 4.15 pm
Shelter; National Housing Federation; National Landlords Association; Crisis
Thursday 24 March
Until no later than 5 pm
Department for Work and Pensions

Chris Grayling: I beg to move an amendment, after the entry for Carers UK, insert in the table

Date

Time

Witness
Thursday 24 March
Until no later than 10.10 am
Professor Paul Gregg (Bristol University)
In the Programming Sub-Committee last week, we acceded to the Opposition’s request to add Professor Paul Gregg to the witness list. He has been added in later this week, and the amendment simply makes provision for that to take place.

Amendment agreed to.

Main Question, as amended, put and agreed to.

Ordered,
TABLE

Date

Time

Witness
Tuesday 22 March
Until no later than 12 noon
Policy Exchange; Centre for Social Justice; Institute for Fiscal Studies; Professor Roy Sainsbury (University of York); Reform
Tuesday 22 March
Until no later than 1 pm
Joseph Rowntree Foundation; Centre for Economic and Social Inclusion; Oxfam; Personal Independence Payment Objective Assessment Development Group (and Equality 2025); Mind
Tuesday 22 March
Until no later than 4.45 pm
Anne Spaight, former Chair of Disability Living Allowance Advisory Board; Essex Coalition of Disabled People
Tuesday 22 March
Until no later than 5.15 pm
People First; National Centre for Independent Living
Tuesday 22 March
Until no later than 6.15 pm
MacMillan; Scope; Community Links; TUC
Tuesday 22 March
Until no later than 6.45 pm
Low Incomes Tax Reform Group; Citizen’s Advice Bureau
Thursday 24 March
Until no later than 9.30 am
Social Security Advisory Committee
Thursday 24 March
Until no later than 9.50 am
Carers UK
Thursday 24 March
Until no later than 10.10 am
Professor Paul Gregg (Bristol University)
Thursday 24 March
Until no later than 2.00 pm
Child Poverty Action Group; Gingerbread; Fatherhood Institute; Working Families
Thursday 24 March
Until no later than 2.45 pm
Women’s Budget Group; Centre for Separated Families; Family Action
Thursday 24 March
Until no later than 3.15 pm
Local Government Association; London Councils
Thursday 24 March
Until no later than 4.15 pm
Shelter; National Housing Federation; National Landlords Association; Crisis
Thursday 24 March
Until no later than 5 pm
Department for Work and Pensions

Resolved,
That, subject to the discretion of the Chairman, any written evidence received by the Committee shall be reported to the House for publication.—(Chris Grayling.)

James Gray: Copies of memorandums that the Committee receives will be made available in the Committee Room.
Written evidence to be reported to the House
WR 01 Marilyn Bernard
WR 02 Residential Landlords Association
WR 03 Ron Ferguson
WR 04 Mohammed Mahmood
WR 05 Neil Foss
WR 06 Joan Lewis
WR 07 Jeff Page
WR 08 MENCAP
WR 09 National AIDS Trust
WR 10 John Andrew Davis
WR 11 Councillor Jonathan Bishop
WR 12 National Housing Federation
WR 13 Marsland Nash Associates
WR 16 Association of Disabled Professionals
WR 17 Centre for Social Justice
WR 18 Building and Social Housing Federation
WR 19 Save the Children

Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Chris Grayling.)

The Committee deliberated in private.

On resuming—

James Gray: I welcome you all to this, the first oral evidence session of the Welfare Reform Bill Committee. I particularly thank our witnesses, who are from the Policy Exchange, the Centre for Social Justice, the Institute for Fiscal Studies, the university of York and Reform, for kindly agreeing to give evidence to the Committee. I start by asking all five of you to introduce yourselves briefly.

Matt Oakley:  I am Matt Oakley, head of enterprise, growth and social policy at Policy Exchange.

Deven Ghelani:  I am Deven Ghelani, and I represent the Centre for Social Justice.

Mike Brewer:  I am Mike Brewer, deputy director of the Institute for Fiscal Studies.

Professor Sainsbury:  I am Professor Roy Sainsbury, of the social policy research unit at the university of York.

Dr Nolan:  I am Patrick Nolan, chief economist at Reform.

James Gray: We have agreed that one member of the Committee will look after each broad area of questioning, but we may range more widely than that, so be prepared to take intelligent questions from all if necessary.

Q 1

Paul Uppal: Thank you all for coming along today. I start with a fairly broad question. Part 1 of the Welfare Reform Bill provides the legislative framework for the universal credit, but much of the detail is to be set out in regulations. I would be very interested in your views on how you think the proposals will work in terms of the stated aims of simplifying the system and making work pay? I address that to Matt Oakley first.

Matt Oakley:  It is definitely going some way to simplifying the system. At the moment, I think everyone would agree that the system is terribly complex and depends on how you classify up to 50-odd benefits or elements. Bringing some of those together and trying to simplify them into a universal credit is obviously an improvement. Where Policy Exchange and I think that it probably has not gone far enough is in relation to the fact that there is still a lack of clarity over things like council tax benefit and whether that is being brought inside. The Department has left out a number of other elements. For instance, it has left out child benefit, which has probably led to a confusing system of how child benefit is removed for higher rate taxpayers. It has left out disability living allowance and a number of other elements that could quite easily have been brought inside universal credit to make the whole system a lot simpler.
That leads on to our view of the impacts on work incentives. Although there has been some progress in reducing the marginal deduction rates or marginal effective tax rates for some groups in the new system, they have not really gone that far. A lot of people will still face effective tax rates of around 76%, which is really quite high. Unless you really simplify the system, such small changes and incentives are unlikely to produce massive results, so we think that more probably needs to be done in other areas—for instance, in terms of conditionality—to get the reduction in workless households and people into work that the system is trying to achieve.

James Gray: Witnesses are not required to answer every question, but if you would like to contribute to any of the questions, you should do so.

Deven Ghelani:  I would like to answer. First of all, the whole thing with the universal credit is to simplify the benefit system and make work pay. But there has been an awful lot of focus on the role that the financial impact and the financial incentives will play in making work pay. There is a very important point here around simplification and the transition into work being as smooth as possible. That should be one of key drivers in measuring how successful the reform is, as well as the ability to understand clearly exactly how much better off you will be in work. Those two key elements are obviously an intention of and part of the Bill that deserve ongoing scrutiny going forward. The financial element is one of the key drivers, but the simplification could perhaps have as large an effect.

Mike Brewer:  The important thing about the universal credit is that it is integrated. People talk about simplicity a lot. The credit is not particularly simple, but it is integrated. That means when you are in work, you get just one means-tested programme and, when you are out of work, you get just one means-tested programme, and they are the same programme. It is simpler in that sense, but the formula will be complicated. That integration and the transparency that it brings about will probably do as much to improve incentives to work as will the change in the financial pay-off to work. They are fairly small and are commensurate with the relatively small amount of money the Government are putting into universal credit.

Professor Sainsbury:  I agree. This is a simplification—or partial simplification—of the benefits system, which is entirely welcome and would answer a lot of the problems that benefit claimants face. But we should not make the mistake that the universal credit itself is still going to be complicated and will mirror many of the provisions of existing means-tested benefits, which people find very hard to understand. It is good because many people will not have to switch between benefits or understand which benefit they need to claim to make the most money and so on. Advisers will find it much easier to advise claimants on claiming benefits and how much they will get from working. It is important to realise that the simplification is of the system and not of the benefit. I doubt whether we will see massive effects on things like error rates, for example. That is not one of the main objectives of the reform, but it is certainly one of them.
The change will make work pay. Work pays now under existing arrangements, but probably not enough. We will not know whether it will pay enough in future to make people change their decisions about working. We still do not know the exact taper that will be put into force and how that will interact with other benefits to create even higher tapers—76% is mentioned as one of the higher rates that we might see. We still do not know whether the provision will change people’s minds about working.
We must also remember that people do not work just for money—they do not only need a work incentive to make them look for work. Work is so important on so many levels that this measure is just one part of the answer. What people really want is an opportunity to work. As the universal credit will hopefully bring more people in and increase take-up of benefits, it will also bring people into contact with Jobcentre Plus, initially, and the Work programme in due course, which will be helpful.

Dr Nolan:  I do not think anyone would disagree with the ideas of simplification in making work pay, but I guess the big concern with the Bill is that the thinking has not been done in enough detail and whether it will happen. Mike mentioned that it is going to be an integrated programme, which will help some simplification, but how will we treat things such as housing costs, child support and so on? The risk is that we will simply layer all this extra simplification back into the programme. Because we have not done the detailed work beforehand, there is a real risk that what sets out to be a simple system becomes quite complex.
The lack of attention to detail shows up in making work pay in particular. Although the measure may make work pay for some people, it will clearly make it not pay for others. It will make it less attractive for second earners in households to work, which may or may not be the right thing to do. But we have not had that discussion or debate, and we have not evaluated whether it is the right thing to do.

Q 2

Stephen Timms: I have a question for Professor Sainsbury on the extent to which the change will make the system simpler. In the note that you have provided to the Committee, you make the point that it is even possible that universal credit will be perceived and experienced as more complex than its predecessors. Will you tell us a bit more about your concerns?

Professor Sainsbury:  Because universal credit wraps up so many other things, particularly tax credits and housing benefit, the process of claiming the benefit and the questions that people will be asked might become longer on an individual basis. The amount of information that they will be asked to provide, which many people struggle with already, will increase. Such people might find what the benefit is and what it is doing less transparent. The experience of going through a claiming process might be more difficult.

Q 3

Priti Patel: I am interested to hear the panel’s views on whether simplification in the system will ultimately lead to behaviour change in those who are currently on benefits. Will it be more positive in encouraging them not only to get back into work, but to lead on to the social policy side of behavioural change?

Mike Brewer:  The universal credit has the potential to bring about behavioural change, and part of that will come because it is an integrated benefit. The idea is that an integrated benefit will be more transparent, so it will be easier for people to work out how much better off they will be when they are in work and it will be easier for advisers to tell them how much better off they will be, as Professor Sainsbury has said.
Such things are important, and currently they do not always happen. It is not always easy to get an accurate better-off calculation, even if you go to a Jobcentre Plus. I often refer to the Department for Work and Pensions research report, which stated that Jobcentre Plus advisers were not sure about housing benefit and how it worked as an in-work benefit. That situation seems ridiculous. It is partly ridiculous that Jobcentre Plus staff advise people on how tax credits and housing benefit work when they administer neither benefit at the moment.
My own research has looked at where claimants find the most hassles in the current system. The particular pinch points are when people move into work, when their circumstances change or when they receive multiple benefits, particularly housing benefit and tax credits. Most of those problems have the potential to go away if the universal credit is successful, and I believe that would encourage people to work as a result.

Professor Sainsbury:  I endorse those comments. The simplification with universal credit removes some of the misperceived barriers that sometimes stop people from going into work. It will provide transparency and simplicity, the value of working will be demonstrable, and there will one figure—there will be no doubt—which will serve to remove some of those barriers.
In the work we did for the DWP last year, which looked at public opinion around benefit simplification, some of the key things claimants told us they wanted from a benefits system were stability and certainty. If you are on a very low income and do not have them, those are the things that could make you very frightened of trying work. It would stop some people from even trying a job, because they feared losing benefit and the hassle of going in and out of work, as Mike has said. Universal credit has the potential to remove some of these barriers, which would be a good thing. People on a very low income are understandably very risk averse, and the current benefits system makes trying work very risky. So I can see that universal credit certainly has the potential to cause some behavioural change at that level.

Q 4

Kate Green: Dr Nolan, you have rightly said that this benefit does not incentivise second earners to move into employment, yet we know that a very important factor in levels of in-work poverty is having only one earner in the household. I am interested in suggestions from the panel as to how the benefit might improve levels of in-work poverty, given that it does not seem well designed to do so through encouraging second earners.

Dr Nolan:  I guess the question is, how much can you actually do through the income transfer system? If you look in particular at the reforms throughout the world—the US, New Zealand, Australia and other countries—they have always struggled with these sorts of problems because there are those inherent trade-offs. Are you going to have a system that focuses on ensuring you do not have these work poor households—where you have at least one person in work—or do you have a system that tries to encourage second earners into work, which has been the UK focus over the recent decade or so? Which is the right answer? I do not know, because you cannot reconcile those goals—you have to choose one or the other. As well as using the financial system, we have to think about what else we can do to encourage people into work. That is why the Work programme is important, but there are also things such as conditionality, because the issue is not just about financial incentives. If we try to develop a system of financial incentives that does everything, the risk is that it does nothing well, so we really have to think about our priorities.

John Glen: I would like to come back to Professor Sainsbury, following on from Stephen Timms’s question about the issues around complexity. You seem to be making some assertions about the benefits that might not accrue from this, but is this not really just a matter—

Professor Sainsbury:  Sorry?

John Glen: In terms of the complexity of the evaluation process—meaning it might not make it massively better than what we have at the moment—is that not just a general comment about all change? Obviously if you are going to change a benefit system there will be some transitional tensions, but there are no specific reasons why this would be worse than any other set of changes when you are trying to fully evaluate people’s needs. You are making a generic comment that could be applicable to any change in benefits, are you not?

Professor Sainsbury:  I wasn’t trying to. I was trying to make a specific point to manage our expectations, because I see the simplification of the benefits system as something that has been overdue for many years, decades probably, but if we try to sell it as a simple benefit—semantic difference is very important here—I think we will disappoint people. Universal credit will be a means-tested benefit, and I have not seen anything in the Bill that suggests it will be any less complex than income support or housing benefit is now, that was my only point. In fact, as I have mentioned to Stephen Timms, because we are bringing in extra elements within universal credit—particularly tax credits—people might be asked even more questions. The claim form might go from thick to even thicker, so the experience of claiming might still be difficult, and we have to be aware of that, because that claiming process puts people off.

Matt Oakley:  There are also good reasons to think that there are specific parts of universal credit that are very complex—it is not just a general point. We know that there will be a complex interaction between housing costs—people on what will be the housing element—and the disregards they will receive. We do not know what the disregard will be for a certain household because it depends how much housing cost you get. Every £1 of housing cost reduces the disregard by £1.50. That is a complexity that has been built into the system. Similarly, as well as universal credit, we needed to think previously about council-tax benefit and how it was paid and withdrawn in local areas. How do I claim child benefit? How do I claim disability living allowance? All those are decisions people need to make outside universal credit, so, yes, systems are complex, but there could be a lot more done to make the system simpler inside universal credit.

Deven Ghelani:  I have one very quick point on simplification. It is right to make the point that there will be elements of complexity within universal credit. At the same time, the fact that people will not be claiming from three different agencies, and filling in the same form three times, should not be underestimated. That is not a particularly simple part of the process that we have at the moment.

Q 5

Jennifer Willott: I have a couple of questions on transitional protection when the benefit is introduced. First, I want to ask Mike Brewer a couple of questions. Mr Brewer, you said to the Work and Pensions Select Committee that transitional protection will not last that long for most families, because family circumstances change quite frequently. Will you expand on that a little?

Mike Brewer:  Yes. This is one area where we would welcome more detail from the Government about how this transitional protection will work. What we know is that families will receive this transitional protection until their circumstances change, but we do not yet know what counts as a change in circumstances. The general point I was trying to make was that family circumstances change over time and the idea is that, as soon as one of these things changes, the transitional protection goes away again and the family will become a loser. It is not clear what would count as a change of circumstance. It might be another adult coming into or leaving the household, or it might be a child growing up, but if it is something like somebody getting a job, increasing hours or getting more earnings, we will find that this transitional protection may last for only a few months.

Q 6

Jennifer Willott: The other thing that you said in the notes that you sent to the Committee was that, after transitional protection ends, couples with children will gain and lone parents will lose. Will you expand on that and say why and how much?

Mike Brewer:  This was based on work that we did which looked at the proposals in the White Paper. We tried to work out what it would mean for families—who would win or lose—and essentially, the finding was, as you have said, because of the choice the Government have made about the disregard and the level of the disregard for lone parents and couples. It seems to us that they have set the level of the disregard for couples, particularly couples with children, at a relatively high level, which means that working couples with children tend to gain from the reform. At the same time, the disregard for lone parents, although appearing very high, is not actually that high compared with what they get under the current system—working lone parents tend to lose, on average. It seemed to us that these were not inevitable consequences that arise when you integrate and merge things together; they came about because of the Government’s choice of the disregard. That is not a parameter in the current system: the Government had a free choice over it, so it seems to us that these were deliberate policy decisions.

Q 7

Jennifer Willott: There will be questions later about disregards, but I have a final question. When transitional protection is lost because of a change in circumstance, there have been some concerns raised that that would count as a work disincentive. Has anyone looked into whether there need to be linking rules, as in some of the current benefits, or what could be done to ensure that the universal credit does not act as a disincentive when it is introduced?

Professor Sainsbury:  I will start by referring to some work we did for DWP on pathways to work and other welfare-to-work programmes. When claimants talk to a personal adviser, whether in Jobcentre Plus or an employment provider, overwhelmingly, the first question they ask is, “How will this affect my benefits?” Just imagine that conversation in the future, under transitional protection. We still do not know what these rules are going to be—they are still up for grabs, it seems to me—but we tend to make an assumption that, if circumstances change, that might be the trigger for forgetting the old benefit and reassessing under universal credit rules. That makes a lot of sense, but just imagine that conversation with a personal adviser when I say, “How will it affect my benefits if this job does not work out in a couple of months? I now get £100 and whatever a week; what will I get in the future?” If the answer comes back, “£65”, what is that going to do to my decision about trying work in the first place? It could well have the behavioural effect that we do not want, with the risk-averse person saying, “No, no—in that case, it is too risky.”
There are other ways of designing transitional protection. It could be that I get my job and my universal credit would have been £65, but I still get my £100 until such time, over years, it catches up. That principle is established on other benefits, I think. It adds complexity and so on, but it would reassure me, asking that initial question, that I would not lose out and then I could try that job. Once I am in that job, of course, we hope that people progress in these jobs and float off benefits altogether.

Q 8

Jennifer Willott: So your entitlement would be frozen at a particular point in time until the credit effectively reached that point?

Professor Sainsbury:  It is one way in which transitional protection could work, but there are no details about what is meant here. You can understand why there is some concern, because people’s circumstances change with remarkably rapidity. I am doing a good job of selling old research here, but we did a project once on changing circumstances. The average number of changes in a six-month period, for people on means-tested benefits, was something like six. That is the average for six months, so some people were having considerably more. The likelihood of a claimant being reassessed because of a change of circumstances would come round pretty quickly for a lot of people, so you would find that transitional protection would not last very long at all for possibly the majority of people. Then you have got a big hoo-hah about losers.

Matt Oakley:  Just a quick one. This conversation underlines that there needs to be more detail about how this is going to work. There is a bit in the impact assessment of the Bill published by the Department for Work and Pensions—I think paragraph 19 details this. I think it says that people will be protected in this way as they move on to universal credit, so that when that change in circumstances triggers and moves on to universal credit, they will get that bump up to maintain their current level of benefit, I believe.

Deven Ghelani:  The details around how transitional protection will work are not currently particularly clear. But at the same time, given the way in which universal credit is structured, I think people also need to bear in mind how many people will be affected by this transitional protection and by how much. I am not sure whether some of the ranges being discussed today are necessarily that common. Differences from £65 to £100 need to be kept in perspective.

Q 9

Charlie Elphicke: Professor Sainsbury, I was fascinated by your discussion about how often circumstances can change. Does that have a bearing on the winners and losers debate? In one month you can be a loser and in the next month you can be a winner. Is that not an important thing to factor in to that discussion about winners and losers?

Professor Sainsbury:  As your circumstances change, of course. If you are on a means-tested benefit, your benefit changes up or down accordingly. In that sense, I suppose, yes, winners and losers are always there—people will see their benefit go up and down. It is not going to create any more or less losers or winners. It is a fact of a means-tested benefit, under whose rules people have to report their changes in circumstances straight away. It generates an enormous amount of work. It can generate quite small fluctuations in benefit, but that is the way in which means-tested benefits have been constructed in this country for many, many years.
I could throw in that there is another way in which you could do this, and that is the old family credit model, for those of you with very long memories, where the benefit—and it was a benefit; it was not a tax credit—was paid for six months, no questions asked. That creates the stability and certainty that people really liked about that. That, actually, was taken forward into tax credits. We have created this. It is our own construction that we require people to report changes in circumstances so often and so frequently about so many things.
There are dysfunctions to that, actually. The piece of work that I am referring to is a bit old now, but I do not see any reason why these findings should not still be valid. It creates a great deal of anxiety among the claiming population about what they have got to do and what they should report. People worry. You get a lot of anxiety about benefits being affected and overpayments resulting. In fact, one bizarre effect of requiring people to report a change in circumstances was that some claimants reported things that they did not need to report. Can I do this? Can I have a holiday or whatever? Can I buy this? And so you are actually generating more work through this regime of constant reporting of changes in circumstances.

James Gray: We have a fair bit of work to get through, so I ask colleagues and our kind witnesses to be as crisp and helpful as possible in their questions and answers.

Q 10

Karen Buck: I would like to start with Mr Brewer, although possibly others will come in on this. In a way, we are linking the issue of transitional protection with tapers, and there will be later questions on disregards. I think that the Institute for Fiscal Studies estimate was that the total gain of the gainers from universal credit would be £3.6 billion and the total loss of the losers would be £1.9 billion. I am assuming that tapers and disregards are one of the critical ways that will determine whether people are in that category. Could you start by telling us a little about the key characteristics of the group of gainers and the key characteristics of the group of losers?

Mike Brewer:  In two sentences!

Karen Buck: In two sentences—no pressure.

Mike Brewer:  Okay. First, most of the winners and losers come from working families, because the Government have said that they want to set the level of universal credit broadly to replicate existing out-of-work benefits, so if you are currently not working and have no other income, you will probably be unaffected, in financial terms, by the move to universal credit. The winners and losers, therefore, come from among working families. Families who have very low earnings or low weekly hours tend to be winners and, in some cases, very large winners, because of the high disregard in relation to universal credit compared with the 100% withdrawal rate in relation to existing out-of-work benefits.
Beyond that, it is hard to generalise, because it depends on the precise choice of disregard and the way in which that varies by family type and housing costs. As I said in an earlier answer, the choice of disregard means that working couples with children tend to gain. Working couples on low earnings tend to gain. Working lone parents on average tend to lose. There is no real magic behind that. It just depends on the choice of disregard and the way disregard falls with housing benefit, as Mr Oakley mentioned.

Q 11

Karen Buck: Can we broaden this out to the taper? Obviously, one of the central elements of the universal credit, and a welcome one, is that it reduces the rate of taper—the marginal rate of reduction—to 65%. What is your view, as a group, of the extent to which that in itself, taking out integration, simplification and other factors, will impact on decisions to go into work?

Mike Brewer:  The choice of the taper means that many working families will see a rise in their marginal effective tax rate, as various of us noticed, so 65% is not really a cut; it is in effect a rise. The rate that the Government would have to choose to preserve most people’s marginal rate would be 60%. That would be the neutral rate in relation to universal credit, but they have gone for a higher rate. Gains in relation to work are strengthened under universal credit because of the disregard compared with no disregard under the current system, and the fact that universal credit combines all benefits, so the Government can say that the maximum marginal withdrawal rate will be 76% and not in the 90s, as can currently be the case. The integration of benefits brings about the fall in marginal rates, not the choice of what is actually a higher taper with universal credit than is the case with current tax credits.

Q 12

Karen Buck: I do not want you to be the only one to answer the question, but again, your submission suggests that 350,000 claimants will face a higher taper than is currently the case. Can you explain that to us?

Mike Brewer:  In fact, many more than that will see a higher marginal reduction rate. We think roughly the same number of people will see a fall as will see a rise in the marginal reduction rate—about 1.7 million either way. One key group that sees a rise in the marginal rate is those people currently on tax credits and in work, who will see their rate go up from 72% or 73% to 76%, so it is a small rise, but others—some people who will be brought on to universal credit who are not currently getting tax credits—will see a much larger rise. The people who see a fall will be the people who are currently experiencing a multiple withdrawal of tax credits and benefits, or the people currently facing the 100% withdrawal rate on an out-of-work benefit.

Dr Nolan:  Mike mentioned that most of the employment effects will come from the change in the earnings disregard. That is one issue that we have had concern about at Reform. If you look at the international evidence on increases in disregards, their impact on the labour market has been very limited.
If you look at the US in particular, a lot of research has been done on its temporary assistance for needy families. Different states have different levels of earnings disregards, so the researchers were able to see whether that translated into different labour market effects in different states, but that did not happen. There were a couple of reasons for that. One is complexity, which we may or may not address with the universal credit; we still have not figured that out. The other issue is that the earnings disregards operate only when people make that initial decision to work, and particularly if they are working for low wages or for a small number of hours. These disregards are also based on a household level. What all that means is that if I am sitting here out of work and I have the choice to take on part-time work, I might be encouraged into work. But if I am sitting here with a chance to go into a well-paid, full-time job or a full-time job in which I would still be eligible for some universal credit, the disregard will not improve my incentives to work. If I am already working and I have a partner who is a second earner and who wants to go and work as well, the disregard will not improve the incentives. So the disregards have a very mixed effect on improving work incentives, and the international evidence suggests that they are not effective.

Q 13

Karen Buck: My last question, if I may, Mr Gray, is for Mr Oakley, in particular. Council tax benefit is obviously moving in the opposite direction from universal credit, and you mentioned in your submission that that seems to contradict the aim of integrating tapers. Can you explain why you think it is being done and what the impact will be?

Matt Oakley:  As to why it is being done, I am not sure I can answer that—you would have to ask someone in the Department. Basically, it is to take a saving out of council tax benefit and to try to give local authorities more flexibility in delivering support to people struggling to pay their council tax bills. In terms of its impact, we obviously will not know what that will be until we see more detail on what will actually be done with it.
If, under one model, local authorities get the power to withdraw benefit as they see fit so that they can introduce another means test, we will just see a repeat of the situation we had previously, with different means tests interacting with each other to form very high deduction rates. If we are talking about 76% deduction rates, and council tax is then withdrawn as well, you will get a multiplication of that to get somewhere near a 100% deduction rate, which is clearly not a good thing.

Deven Ghelani:  It is quite an important point, but my understanding of the IFS work in terms of winners and losers is that it does not take into account the impact of universal credit on moving people into work, which we all have to remember is the ultimate aim of universal credit.

Q 14

Guto Bebb: On the 65% taper rate, the Government have stated that it is an issue of affordability. Is there a magic number? Should the percentage taper rates be lower to ensure that there are more winners than losers in the system? The marginal tax rate is an issue I am very aware of, and I would like your comments on the fact that 65% has been mentioned as a choice made on affordability levels.

Matt Oakley:  One thing I would like to note—it does not necessarily answer your question directly—is that we are focusing a lot on the financial incentives, and there is a lot more than just the financial incentives. As Patrick said earlier, the international evidence is somewhat mixed on the impact that increased financial incentives can have on large proportions of the labour market. Yes, they will help some marginal groups. For instance, lone parents are cited as a group that is quite responsive to financial incentives. But for the majority of what we used to call prime-age males, whom a lot of the research focuses on, the impact of financial incentives is quite small, whereas the impact of other things, like conditionality and enforcing sanctions properly, is much stronger. I would like to move away from thinking about what the optimal deduction rate is, because there are things that could have a much stronger impact.

Dr Nolan:  There is no silver bullet. In particular, you could have a lower deduction rate, but you will then push the abatement further up the income distribution. That will mean that people who currently do not face high marginal tax rates will start to face them. There is no way of avoiding these sorts of trade-offs. Some people will always have to face high deduction rates. It is a question of where you locate them.

Q 15

Kate Green: I would like to pursue a couple more questions on disregards. Patrick Nolan has just explained to us that one consequence could be that they discourage second earners and couples from entering the labour market. To what extent is that because the benefit is designed as a household benefit? Could that be addressed by assessing each member of a couple individually?

Mike Brewer:  It is entirely because it is a household or family-level benefit. There are many ways the Government could solve this. The suggestion that I made in my work two or three years ago was that each person in a couple might have their own disregard. That would not be a full separation of benefits, which I think is what you were asking about, but it would ensure that the second earner’s incentives were not that different from those of the first earner. Of course, there is a cost to that and, as Patrick said, the consequence is that it would extend universal credit further up the distribution to slightly better-off couples. But if you are particularly concerned about second earners, my preference is to give each person in the couple their own disregard, perhaps at a lower rate than the current one.

Q 16

Kate Green: My second question about disregards is to ask about the impact of removing the earnings disregard from people under the age of 25. Does any of the panel have any comments on that?

Deven Ghelani:  It is quite low at the moment, I understand, certainly if you are single—that is my first comment. From my experience it was £5. The incentive of having a much-improved taper fairly quickly counteracts the removal of that level of disregard to zero—that is just my reaction.

Professor Sainsbury:  I have nothing to add about under-25s, but I wanted to pick up on the discussion about household versus individual assessments. I am not quite sure how much it is on the table as a possibility, but I just want to inform the Committee that, in the piece of work on radical benefit reform that we did last year with members of the claiming population, individual assessment spontaneously arose as a thing that people were very keen on. They saw it as beneficial to understanding their situation, and to understanding how the benefits system and work would interact.
In particular, if you had individual assessments, it would do away with the living-together problem. At the moment, if you are a couple living together—not necessarily married, of course—you are treated as a household. If you had individual assessment, the suggestion was that you would get away with all those problems. Living together is the single most common or highest value reason for benefit fraud; it is higher than earnings fraud and so on. It is an interesting idea. I am not quite sure how far the Government are thinking about individual assessment, but it has some traction with members of the public and the claiming population.

Deven Ghelani:  It might be worth explaining why the Centre for Social Justice opted for payments on a household basis in “Dynamic Benefits”. Fundamentally, it is because it concentrates work incentives on workless households. By concentrating the disregard on the first earner, you maximise the incentive of having that first earner in a workless household going to work.
My understanding is that the CSJ looked at payments on an individual basis in some of its “Dynamic Benefits” research. The reason why that was disregarded—albeit that it does have some benefits, which Professor Sainsbury talked about—was the cost. If you were to keep individual benefits at the same level, the cost of paying those benefits on an individual basis would be something like £0.75 billion, if not more.

Dr Nolan:  Picking up on the under-25 issue, the key issue there is value for money. We should not forget that there is a Budget tomorrow, and we have this incredible budget deficit, so we always have to ask the value-for-money question. In particular, people under 25 are a very mixed group. There are a lot of students. They are also people who tend to be quite responsive to conditionality, rather than to financial incentives, so if we really want to get them to work we need to focus on conditionality, not incentives.

Q 17

Kate Green: I found absolutely fascinating the answers on second earners and on women’s financial independence being balanced against a benefit that can incentivise people just to get them into work. If I may ask one final question, will panel members clarify the point about disregards and the interaction with housing costs, because there is a 150% impact on disregards if you are in receipt of housing benefit? Will the panel comment on the consequences of that?

Mike Brewer:  In the current system, if you are receiving help with housing costs, you effectively face a higher marginal withdrawal rate, because you lose your housing benefit and your tax credits at the same time. The Government did not want that; they wanted a single deduction rate to apply to everybody. If they did not reduce the disregard for those receiving housing support, the universal credit would go way up the earnings distribution to ridiculous, unaffordable, unimaginable amounts for somebody receiving housing benefit. Having a lower disregard for those receiving help with housing costs is the only way the Government can afford to implement the universal credit and have a single withdrawal rate—maximum 76% applying to everybody. It is almost inevitable. Essentially, it is broadly replicating the current system. Basically, with the universal credit we will start tapering sooner but at a slower rate than under the current system, where we start a bit later and taper it away more quickly. It is not quite as discriminatory as you might think it is.

Q 18

George Hollingbery: Mr Ghelani, you mentioned that in the research the CSJ had identified a very considerable cost to individual disregards. Do you have those numbers to hand or could you supply them to the Committee?

Deven Ghelani:  There are some very rough calculations that I did before appearing before the scrutiny Committee. That is where the figure of three quarters of a billion comes from, as part of the submission that was made. Those are available, but I will have to talk you through them. Perhaps it might be worth asking the question whether there is more work that can be done to figure out exactly what that cost might be.

Q 19

Stephen Timms: I want to ask some questions about the effect of extending the long-established means-testing rules in out-of-work benefits into in-work benefits in universal credit. First, on the savings cap, people who are in work with £16,000 in the bank will not be able to receive any universal credit in future. I will ask Mike Brewer first. How many people does the IFS estimate to be affected by that? The Social Market Foundation said 400,000. On Second Reading, the Secretary of State said 100,000. Has the IFS formed a view about how many is the right answer?

Mike Brewer:  I am afraid we haven’t. The fact that universal credit will have asset rules in it is very important. It’s an important part of the savings. The Government are saving money in this way. I think that by focusing on the cliff edge of £16,000, you are missing the bigger picture—the imputed income rule. The fact is that somebody with £15,000 of capital will have an income imputed to them of something in the order of £40 a week. In many cases, that will remove all entitlement to universal credit, so it is not the cliff edge that is the important thing; it is the £1 of income imputed for every £200 of capital that is the important thing. That is probably what the Social Market Foundation was getting at when it came up with its numbers, whereas the Government have given you the figures precisely at that cliff edge of £16,000.

Q 20

Stephen Timms: Is it a specifically difficult thing to work out?

Mike Brewer:  The data on how much capital people have are not as good as that on their income, but surveys are reliable enough to estimate it.

Q 21

Stephen Timms: I tabled a question to the Government about how much they were going to save by this measure. The Minister answered that the DWP’s estimate was that it was going to save £70 million. If it is the case that only 100,000 people lose all their benefits because of this measure, given that average tax credit payments are £4,000 or £5,000 a year, the £70 million figure seems a very small one. Have you any comment on what the Government might be saving by such a measure?

Mike Brewer:  I have not done those calculations, but I imagine that focusing on the average tax credit is not the right thing to do, because those families with high amounts of savings are probably going to have less than average amounts of tax credits. I don’t think I can say any more, because I haven’t done the calculations.

Q 22

Stephen Timms: May I ask an historical question? Professor Sainsbury, you mentioned family credit earlier. Was it the case in family credit that there was a savings cap such as this? It certainly wasn’t present in the tax credit system, but I wonder whether it harks back to—

Professor Sainsbury:  Yes, family credit was a means-tested benefit, and it had a capital limit and income rules.

Q 23

Stephen Timms: May I ask Mr Ghelani a question? In its report, the Centre for Social Justice was critical of the effect of the savings cap in means-tested benefits currently. The Government decided to reject your advice on this and to extend the cap into in-work benefits. Can you tell the Committee more about the problems that you think that will cause?

Deven Ghelani:  It is fundamentally a disincentive to save. I think that the savings limit for people who are not working and are on benefits has been £16,000 for I am not sure how many years, but certainly rather a lot. The limit has not been uprated for at least a decade I would say, and possibly a lot longer. By extending that to people who are working, people who get close to that threshold might suddenly realise that it does not pay to save and that there are perhaps other things that they should be doing with the money, whereas saving is in itself a protection against dependency.

Q 24

Stephen Timms: I have one final question. Another aspect of the extension of the means-tested rules into in-work benefits is the effect on unearned non-investment income, and the IFS preliminary analysis picks that out. Could you tell us what kinds of income will be treated less generously under universal credit than under the current tax credit system? You mention in your analysis widows pensions, private pensions and maintenance payments.

Mike Brewer:  Again, I preface my statements by saying that this was our interpretation of what the Government said in the White Paper and we do not yet know all the details. You have listed some of the income categories. Certain benefits, including statutory maternity pay, the widows pension and maintenance payments that are made by a former spouse to the adult rather than the child—child maintenance will be disregarded—would be counted as income. The key difference from tax credits is that those things will be tapered away at a 100% withdrawal rate, and not at the 65% rate that we talked about earlier, which applies to earnings. That rate is much higher than the one under tax credits at the moment, which is 41% or 43%, or in some cases, for example with statutory maternity pay, it is disregarded entirely.

Q 25

Julie Elliott: We do not yet know how child care costs will be treated under universal credit. Parents could in some cases face very high marginal deduction rates, of possibly greater than 100%. I am interested to know what your view is on how that might be addressed.

Deven Ghelani:  We recommended in “Dynamic Benefits” that child care be the subject of a separate piece of research. It is an important area and it deserves its own detailed investigation. Having said that, there are some challenges that we face, and I would like to make three points about child care. First, the fundamental cost of child care in this country is extremely high, and that is perhaps the first policy issue that needs to be resolved. The second point is about incentives, about the difference between the cost of child care and the capability to earn per hour of a lone parent, or a mother or father, versus the hourly cost of child care. That is the driver. Thirdly, at the same time, and at a time of very tight fiscal constraints, there perhaps needs to be some open debate about the extent to which subsidising child care is the best use of funds. That is where we were with the debate, and it is partly why the issue was not something that could easily be addressed as a subsection within “Dynamic Benefits.” It certainly deserves its own investigation.

Mike Brewer:  I am afraid that I do not recognise the situation that you described, with parents facing marginal rates in excess of 100%. Would you be able to explain how that comes about?

Q 26

Julie Elliott: At the moment, if you are paid £1, the cost of being paid that pound is that you sometimes lose double that amount in benefits. It is not explained in the Bill, and the Work and Pensions Committee found that this area was a problem; there is no answer to it at the moment.

Mike Brewer:  I cannot comment on that, but what I will say is that it is always a good thing that the Government are thinking about how best to support child care. They probably cannot just directly import what we have at the moment into universal credit because the current system relies on hours rules and the Government do not want to have hours rules in universal credit. Quite rightly, therefore, they are thinking about what else they could do. It is also the case that the administration of the current system is not at all ideal. The child care element of tax credits is disproportionately the cause of loss, overpayments, and fraud and error. I welcome that the Government are thinking about how better to administer support for child care. I can see that it is a very important component of the benefits for families with children, and it would be nice if the Government could be clearer about what they wanted to do.

Dr Nolan:  I think that Mike made the point very eloquently. If we are concerned about child care, the focus has to be on improving the child care system. This is not necessarily something for the universal credit to fix.
One quick, general point is that we have to go back and say, “What are this system and the universal credit here for?” It also relates to the question on asset rules. The universal credit is not designed to solve every problem confronting the income transfer system and nor should it. We have to rely on other programmes, and we have to reform them too. Families and individuals have to take some responsibility for some of the costs themselves.

Q 27

Margaret Curran: May I ask a brief question? In principle, do you think that it is proper that the state offers some support for families seeking child care to help them to work?

Dr Nolan:  Yes.

Professor Sainsbury:  Yes. It is a matter of how the state does it. I think that point has been made a couple of times, and I would reinforce it. We cannot expect the social security system to solve all the questions of the welfare state. It has been tried before. It is not a vehicle for solving issues such as noisy neighbours. Fresh, new and different thinking outside of universal credit is probably the best way.

Q 28

Margaret Curran: You all agree with it in principle, so there has to be some degree of funding within this system. I take your general point that none the less, the social security system can play a part in helping people fund child care to enable them to work. I thought that maybe you were saying something different.

Dr Nolan:  No, no. Of course the social security system should play a role, but it is not necessarily the role for the universal credit. We have to look at this in context. The concern is that social security is overreaching its role. We have to think about whether there are cases around asset rules, child care and other things where we are going to have to say to families, “You have to now take some greater responsibility on yourself.”

Q 29

Julie Elliott: Some benefits have been brought in to try to get people with children back into work, but detail of how any of that works is glaringly missing at the moment. Going from what you are saying, if we do not get this right, could the end result be that more people with children will end up not working, therefore being a greater burden on the state than if they are given some help to go to work and be able to contribute to the state? That seems to be what you are saying.

Dr Nolan:  Yes, and that is why we have big concerns on the reform and the design of the universal credit. As I said in my earlier remarks, a lot of the detail has not been thought through, particularly how it interacts with things such as child care.

Q 30

Sheila Gilmore: This is a question for Deven Ghelani. You made a statement—I do not know on what evidence—that child care is particularly expensive in the UK. In what respect do you think it is so? What do you think can be done about it to make it possible for people to work?

Deven Ghelani:  Again, this is not something that the CSJ has looked at in great detail in terms of its context around the universal credit. I have looked at it a little bit, and my understanding is that the cost of child care in the UK is higher than in a number of countries—the US being the only one I can recall off the top of my head.
The other point is around structural questions on the delivery of child care. It perhaps needs to be flexible enough to suit someone’s work circumstances. You need child care while you are working, and the flexibility of the hours of the job that you are going to do and the flexibility of child care also need to accommodate that. Those are perhaps some of the more structural issues around child care.

Q 31

Harriett Baldwin: I want to turn to the subject of passported benefits. There is a range of passported benefits such as prescription glasses, prescriptions generally, concessionary travel in some areas, possibly help with university tuition and, very importantly, free school meals. Does anyone on the panel have a recommendation for the Government as to how they can design a system for passported benefits under the universal credit that is fair, does not create disincentives and is simple to administer?

Deven Ghelani:  We did look at this when we were looking at the potential implementation of something like dynamic benefit before the election. There are some passported benefits, such as free school meals, which are relatively evenly distributed. The way that you might deal with those is to impute the financial value towards the value of that benefit—something like free school meals might be £25 a week or so, although I am not sure—and tapering that away from the award, either at the start by reducing the disregard and thereby reclaiming the money sooner, or at the end by extending the taper, by £25 further. That would be one way you might be able to reclaim that. Where that system falls down perhaps is where you have very irregular types of passported benefits, such as prescriptions and dental care. The imputed cash value does not necessarily work quite so well there.

Matt Oakley:  My answer goes back to what I said previously, and I think that some of the answers around the issues of child care and passported benefits kind of talk to that as well. Universal credit can’t do everything. It is not possible to get all of this into universal credit without getting back to the situation we have just come from. We have a very complex system because it tried to take account of all of these problems. I think that is why Government are not saying very much about some of these things, because it is so difficult. I wonder whether we should be putting all this need into the universal credit and whether we should be thinking about things separately—our child care system, passported benefits. It is so, so difficult.
Summing up, I think financial incentives are not necessarily everything. Yes, we give passported benefits for a reason—because people who are on very low incomes benefit and need that kind of support—but, just because they go to work and lose that, doesn’t mean that they shouldn’t go to work. It should be about conditionality, and about making sure that people are required to go to work—they need to go to work when they can do.

Q 32

Sheila Gilmore: Even if they are worse off.
Sorry, I listened to what you said there and what you seem to be suggesting is that people should go to work even if, because of things like passported benefits and child care costs, that would make them worse off.

Matt Oakley:  I did not say child care costs.

Sheila Gilmore: Well, you kind of said that should fall outside of it.

Matt Oakley:  I do not think that there is any reason why people who are able to work and can go to work should think that they can live off the state.

Dr Nolan:  I would agree, but I think it is important to recognise that, if the work is available and adequate, and the person can have a reasonable life—however we define that—then the person should take that work. Whether or not they are better off on a benefit should be irrelevant. It sounds like a hard-nosed thing to say, but the reason that I say that is because, if you look all around the world, every country is having these sorts of problems and debates, because you can’t ever design a system in which everyone at every time is always better off in work. At some point, there has to be at least a nugget of responsibility where we have to say to people, “Actually, you can have an adequate life in work, you have to go and work.”

Deven Ghelani:  The point that I wanted to make was that it is not so much a moral issue, but how we see benefit claimants interact with the system. If, actually, so many other parts of the system need to play a role—conditionality and back-to-work support being some—what we find is that, if people do not feel that work is rewarding relative to the risk that they have to take to go into work, that becomes somehow fundamentally unfair to expect them to make that decision—if they are putting the roof over their head at risk, for example.

Q 33

Guto Bebb: On free school meals, that is a crucial point in terms of the affordability of going back to work. I speak as someone who pays £48 a week for school meals, because I have so many children perhaps. It is a crucial issue because, quite often, the money comes from the mother. The whole thrust of the Bill is to make work affordable, so the act of physical transfer of money at the end of the week is an important issue.
I have a second point on passported benefits that I would like you all to comment on. In Wales, we have a devolved Administration responsible for the payment and administration of free school meals. It is imperative that, in an area such as Wales where there is such a dependency on the welfare state, any system brought into play takes into account the difference from a devolved system’s point of view. Is there any evidence to show that free school meals are an important issue when people make decisions about whether to work?

Deven Ghelani:  If it is a cliff edge—and that is how they are administered, so they act as cliff edge at the moment—you can see how that might impact on people’s decisions on whether to work, particularly if their earnings do not accommodate for what is lost through passported benefits. The point I made earlier was that through the universal credit, it does not necessarily have to have that effect, you could have an imputed cash value that is tapered away in the same way that other benefits might be. I need to do a little more work to figure out exactly how that might look.

Mike Brewer:  I cannot point you to any quantitative evidence that shows it is an issue, but there is a great deal of qualitative evidence of people on benefits saying that it is a major barrier to moving into work. It makes sense that it would be. If you have several children of school age, paying for their lunch is a big deal. I think that it is an important issue. The previous Government announced that they would extend free school meals to people on working tax credits, and it would have been very interesting to see not only how that affected children’s behaviour at school but whether it affected work incentives. This Government decided not to go ahead with that.

Q 34

Guto Bebb: Just to follow on in specific terms, I have also come across the issue in relation to people thinking of starting their own businesses, and the contribution at that point is crucial. It has been mentioned that when starting a business it is very difficult to get finance together, so free school meals at that point are important—that is anecdotal. Is there any evidence on that?

Mike Brewer:  I do not know of any.

Q 35

Paul Uppal: I was interested in some of the remarks that you, Dr Nolan, and actually the whole panel, made about how far the Bill can go in providing a carrot and a stick. There has to be a line in the sand on these things. This is quite a subjective question and I appreciate that you might not be able to answer it. Obviously, the current system is not perfect, and there might be flaws in what is proposed, but do you feel that there is a signal in this in terms of the tacit understanding that many people have with the current benefits system? Fundamentally, at its core it is trying to give the ethos that, regardless of whether people are worse off or better off, it is to everybody’s benefit—not only the individual’s, but society’s—that work should pay. I appreciate that I am asking you to respond from your own subjective view of tackling these issues and taking it head on.

Dr Nolan:  As I have said many times before, I think that the reforms set out absolutely the right ambition. Simplification and making work pay are important. My concerns are largely around whether we have done enough thinking about the design and whether we can deliver it with a specific IT system. I think that signal is there.

Q 36

Charlie Elphicke: I turn to the issues of fraud and error. The bill of £5.2 billion or so a year seems to be one-third fraud, one-third official error and one-third benefit recipient error. What do you think of the Government’s claim that this is likely to achieve savings of £1 billion in fraud and error and £500 million in administration costs?

Professor Sainsbury:  I certainly see that universal credit with a single organisation administering it will bring down administrative costs. I cannot comment on the figure of £500 million. The claim that universal credit will reduce fraud and error is interesting. I find that hard to understand given that universal credit will still be a quite complex, means-tested benefit with, as I said earlier, many of rules of income support, housing benefit and tax credits imported into it.
The hoped-for computer system that will work in real-time with PAYE and make immediate adjustments of universal credit as earnings change will help. It will certainly help to cut down fraud and error in that particular area. However, most fraud and error does not occur because of earnings. I mentioned earlier that the big one is living together. Earnings account for a small percentage of fraud and error. Fraud and error are very different between different benefits and tax credits. Undeclared partners, child care costs and the number of children are all reasons for fraud and error on tax credits, and universal credit is not going to make it any different. There are still people who will be able to declare the wrong number of children or claim different child care costs and so on. I must admit that I fail to see and have seen no justification for those savings figures. I fear that we may be disappointed, because, although universal credit will bring benefits in many different ways, it will not be the answer to fraud and error.

Dr Nolan:  I think that the administrative issues are incredibly important. In particular, if such a small proportion of fraud and error is related to earnings, it means that we have to monitor things like changes in family circumstances, how long a child is staying with different care givers and separated households. Those are the things that we cannot actually use smart automation to address, so we are trying to develop this IT system. We have quite a poor record of developing IT systems in this country—look at the child support programme in 2003 and Connecting for Health. When you add on to that the complexity of dealing with some of the most complex families in the country—people who are, inherently, dealing with difficult lives and whose circumstances are changing a lot—I do not think we are going to be able to develop the IT system.

Matt Oakley:  May I support that and say that fraud and error is really important? The savings from fraud and error are obviously driving what makes this affordable, so you have to worry that you are over-egging that slightly. If you take away the fraud and error and assume that it goes to zero—so much of it comes from a change in circumstances—you have an overall cost of £4.6 billion. You have to think about whether that is a cost-effective way of getting 300,000 households back into work.

Q 37

Yvonne Fovargue: Have any studies been done on the impact of the proposed changes to legal aid that will take welfare benefits out of scope and make cuts to advice agencies? That may impact on claimant error. At the moment, the benefit is complex and people require help claiming. Professor Sainsbury, you said the forms will be even thicker. Have any studies been done on the impact of that?

Professor Sainsbury:  Not that I know of, but it is inevitable that, when advice agencies are having their budgets cut and CABs are shedding staff, the level of advice to claimants who will need it in the future as much as they have in the past will be diminished, and that there will be more errors. That is absolutely true.
People do not make mistakes deliberately. I made the point in my written submission that I find the £50 civil penalty rather odd. It is trying to punish people for making mistakes. At the moment, a mistake is a mistake and there are many reasons why people make mistakes, because the benefits system is so hard to understand, and universal credit will still be hard to understand. I do not think that that is the answer to reducing error.
It is a serious problem. The demand for advice is probably much greater than supply at the moment, and the supply is going to go down. That is not going to be very helpful for claimants, nor will falling into, if not error, worry and anxiety. They will not get the advice about how much work will pay, when the message that we really want to get through to people is how much they can be better off.

Q 38

Sarah Newton: Could you expand on your views on conditionality and the savings regime within the universal credit? You have already said this morning that you have some reservations about the financial incentives, but do you think that some of the conditionality in the sanctions mechanisms in the Bill will provide encouragement for people to seek employment?

Professor Sainsbury:  We have heard from other members of the panel that we need more conditionality almost—I am paraphrasing, so I apologise if I have got that wrong. The evidence on the effects of conditionality and sanctions on people’s behaviour is much more mixed. There seems to be an over-emphasis on that in policy. I am sure that you will all agree from your own experience as MPs that most people want to work. They do not need sanctions or conditions; they need help, jobs and opportunities. I can understand why there is an interest in a hard core of people who resist work at all costs. Of course, as one of you said, we need to draw a line somewhere. What is in the Bill at the moment feels rather heavy-handed and overdoing it.

James Gray: Order. I am sorry, Professor Sainsbury, but the rules of the House insist that at 12 o’clock precisely I have to interrupt you in mid-flow, which is very rude, so forgive me. On behalf of the Committee, I thank all five of you. It has been an extremely useful session. I think we have given you quite a grilling, but I hope you have enjoyed it as much as we have. Thank you. I now call on our next panel of witnesses to join us.

James Gray: Order. If we are all settled comfortably, I welcome the second panel of witnesses. For the record, I ask you all to introduce yourselves briefly.

Kate Wareing:  I am Kate Wareing, director of Oxfam’s UK poverty programme.

Chris Goulden:  I am Chris Goulden, a poverty programme manager at the Joseph Rowntree Foundation.

Vicki Nash:  I am Vicki Nash, head of policy and campaigns at Mind.

Andy Rickell:  I am Andy Rickell, chief executive of the Vassall Centre Trust, and on this occasion a member of Equality 2025 as well.

Paul Bivand:  I am Paul Bivand, head of analysis and statistics at the Centre for Economic and Social Inclusion.

James Gray: By agreement of the Committee, I understand that you, Mr Rickell, have kindly slotted into this session, even though your particular expertise does not come under precisely what we are discussing. Therefore, by leave of the Committee, we are going to address our questions to you first.

Q 39

Maria Miller: I want to turn the attention of the Committee to something other than universal credit. There are major provisions in the Bill about disability living allowance and I want to take the opportunity to focus on the new assessment that we are looking at. Disability living allowance currently relies on self-assessment of an individual of their own condition. That has led, by necessity, to a very complex assessment form.
I know, Andy, that you have been involved in how that might be improved in future. Vicki might also want to contribute. How have you been able to look at the assessment; how might it be improved; how have disabled people been involved in the process; and how might they be involved in future? After all, they are the people most affected by the provisions we are making in the Bill.

Andy Rickell:  We start with an issue around the concept of assessment generally—the idea that somebody comes and makes an assessment of a disabled person. One issue has been to try to find a way to create an assessment that disabled people feel is credible.
Traditionally and interestingly, when the Chancellor of the Exchequer introduced the concept of the assessment, he used the word “medical”. That brings into disabled people’s minds a whole range of things that we have been working really hard not to introduce into the assessment. We have tried to avoid things such as the concept that disability is all about someone’s impairment; that somehow disabled people cannot be trusted to identify either intelligently or accurately what their needs are; that such support is because someone cannot do something rather than being an enabler to do something; that each bit of support requires an appropriate and different assessment. Of course, this assessment would be on top of all the other multiple assessments that disabled people experience. The feeling in disabled people’s heads is, “This is about protecting the Exchequer rather than giving me a good deal.” All those are things that you are trying to avoid in introducing the assessment.
The group was keen to look at how best to address that. We absolutely wanted to avoid the medical-model concept of, “It’s all about your impairment. Find your condition, and that justifies your level of entitlement.” That is one of the reasons why we have avoided the concept of automatic entitlement in the case of terminal illness. A key thing that we discussed was identifying barriers to participation. That was the fundamental basis on which the assessment seeks to work. It is a bit like Maslow’s hierarchy of needs and so on: identifying basic needs and working backwards.
Given that the Government have given a steer in terms of identifying the people with greatest need, we started on that basis and came up with a number of different areas of living in which people might be regarded as most disadvantaged if their needs are not met and the barriers are not addressed. The obvious ones are feeding, clothing and so on. In particular, introducing a priority for communication is one that I was very keen to push on. Often, in these assessments, it sounds like the disabled person gets treated as a dumb animal, yet communication is a fundamental human right, and is actually the precursor to all the other things. If you cannot communicate, then all the other things that might be done are done to you rather than being something in which you have a say. That was an important introduction.
I am aware that in terms of the consultation that was done on the 10 or so different areas of need, the consultees generally said yes, they thought that we had hit the button. We were hitting basic issues of daily living and the basic barriers that disabled people face. They want their needs recognised in the process, but they also identified one or two other needs that we had not met, such as parental responsibility, which I have been pushing to get into the assessment, as I think that it is a key issue for disabled parents and an issue that the current assessment fails to address.

Q 40

Maria Miller: May I press you on the involvement of disabled people?

Andy Rickell:  Sure. In terms of the process, you are right: it needs to be an assessment that disabled people feel has some credibility. In that process, several members of the assessment group were disabled people or the representatives of disabled people. Those voices were certainly heard loud and clear. In terms of the process, there is then going to be a whole raft of testing processes; I am very pleased about that. Disabled people will be tested at various levels, and the various different assessments will be judged against that. There needs to be a consultation on the actual assessment. It is all very well saying what those will be in terms of regulation and law, but the fundamental thing is how the assessment works in practice.

Q 41

Maria Miller: May I follow on from that idea of how the assessment works in practice? Ms Nash, at the moment, how do you and Mind feel about how DLA currently works to assess people with mental health conditions? What do you think we could usefully take forward from the Harrington review to help inform our future assessment process?

Vicki Nash:  From a mental health perspective, the absolutely important point to get across is that DLA has provided a real lifeline for many people with mental health problems. It helps to have a smaller top-up so that people do not live in social isolation but get out and have contact with their friends. The fact that the individual can spend that money in a way that supports them is critical. In any reform to the process, we would want to make sure of that going forward.
Like any form filling, it can sometimes be incredibly difficult. You need to have the support in place to help see that through. A lot of the feedback that we have from people is that it feels like they are not only having to fill in forms for DLA but for a whole variety of different benefits and processes. They are trying to engage with systems in health and social care and work and pensions. It is incredibly complicated for people, so obviously, again, any way to help to improve that system from a user’s perspective would be helpful.

Q 42

Maria Miller: But are you happy with the way DLA assesses mental health at the moment?

Vicki Nash:  The evidence suggests that it works for some people and not others, so obviously you want to work out how it can work for the majority of people. As I said, sometimes, in terms of the actual form filling, if people have support with that it can be beneficial to the end result.
In terms of taking that to the next level, the challenge with DLA and its successor, and with broader benefits is that because mental health problems are often seen as an invisible illness, there is a stigma of discrimination, and people don’t understand why it is needed. We asked people on Facebook and Twitter to tell us what they wanted to say to you about the impact of welfare and the changes that are coming. One person commented, “I am ultra aware that others may think that I’m a scrounger or a loser because I don’t have a real illness and I don’t have a job. This is not a lifestyle I would wish on anyone.” That is critical to the people we’re talking about now.
The challenge with trying to engage with the Bill at the moment is the lack of detail of what is in the Bill and what it will cover, so it’s difficult to work out what might work and what might not. Obviously, we’re seeking to work with the Bill team and officials as it goes forward. Specific to the DLA—obviously, Andy has spoken about the efforts to try to make sure that we learn the lessons, particularly from the work capability assessment—is that despite the best intentions in terms of the language, it still uses medical terminology and words such as “descriptors”, which immediately send shock waves through the disability community, because we’ve had such a difficult time getting the WCA to work for us. Essentially, it’s not fit for purpose.
Combined with the challenges of the assessment and people’s fear and anxiety that may come with that, is the 20% cut that will come to the budget. For many people, those two areas don’t seem to square up at the moment. You can’t help but think that some people will lose out with such a significant cut coming to the budget.

Q 43

Maria Miller: Thank you for both those contributions. It is really helpful to get them on the table. Perhaps I could just clarify that obviously the budgets we are talking about are keeping expenditure at the same level as last year, and the reduction in expenditure is about a reduction in the growth of expenditure. It is really important that the Committee understands that.

Vicki Nash:  That is a good point, but we would say that it’s still significant.

Q 44

Margaret Curran: I am sure we’ll have more time in this Committee to explore, but I’m frustrated because I can’t possibly ask as much as I would like to. I want to ask both of you a couple of questions. One is that DLA, warts and all—many improvements are required—is still a valued and important benefit. It is well understood, and people know its purpose. It is important to understand that.
The second point, particularly to you Andy, is about the assessment process. One thing disabled people tell me is that they are worried about the term “greatest need” in the context of cuts, particularly in relation to mental health, because they worry that the benefit will be targeted at people with noticeable disabilities, and that there will be a hierarchy of disability, and only those with the most noticeable disabilities will attract the benefits. There could be difficult cuts, and the assessment process might be the means to do that. Are you conscious that there is an awareness, particularly when looking at people with mental health problems, of disabled people’s concerns about the potential difficulties in the assessment process?

Andy Rickell:  Yes, and in a sense what it looks like on paper is one thing; how it’s delivered is another thing entirely. The Harrington review picked up on issues about the relationship between the assessment and how it’s delivered, and how it can have a major impact on how people feel about it. Effectively, a lot of the detail will be how it is delivered. You are going to make a judgment about the high-level stuff. In reality, it will be the lower level stuff and what happens day to day that will make the big difference. If you can influence that, it would be really helpful.
There are a number of things that I think can help the process. One is to get away from the idea of where the assessments are located; they should not be to do with anything medical. There is something about who might do the assessment process, and it might be good to get away from the concept that it has to be done by a medically qualified professional; we would argue that disabled people have a competitive advantage in potentially being very good assessors.
There is something about the assessment process allowing the person to put their case in the best way that they can—it might be online, it might be on paper, it might be face to face. A face-to-face interview might be what a person wants rather than having to fill in a form first, because that might be a barrier. It is a means by which a person is able to have a genuine dialogue with the assessor, being able to put their case across, with support if necessary, and being able to challenge any views that the assessor has about what they think they might be going to do to that individual, so that the person can then challenge it. It is something about enabling the person to get their case across.
You are absolutely right that there are issues around how you assess, particularly given that mental conditions are often fluctuating or variable, and how you go about doing that. If someone does not have a leg, they do not have a leg; it is clear, and it is not going to change. In terms of fluctuating conditions, on the day that they are being assessed or being asked about their assessment the person may not be able successfully to put their case across.
One of the issues for me when talking about the assessment process in the group is how to ensure that people with fluctuating conditions are able to give the genuine worst-case of a situation that they are in, rather than being asked a general average. There is something about really being able to understand what this is.
One of the problems might be if one was to include the question, “What is your condition most of the time?” Again, that creates a requirement that may not necessarily apply for a mental health condition; the person may have episodes that are extreme but not necessarily for 50% of the time or more, but the nature of their situation means that they ought to qualify for the benefit.
There is something about getting away from the idea that it is a lot easier to assess a physical condition; the issue in the assessment process, particularly in the testing, will be how to ensure that those other conditions, which are not so easy to judge, can be judged fairly.

James Gray: Thank you, Mr Rickell. I am keen not to go too much into our time for discussing the universal credit, so if colleagues will forgive me I think we ought to move on to the main topic. Thank you for your contribution.

Q 45

John Glen: Looking at the universal credit, as an initial question I would be very interested to hear your assessment of the impact that it will have on in-work and out-of-work poverty. When giving us your observations, perhaps you could explain the basis for them—what data you are using and the reasoning behind it—so that we have a basis for further questions. Perhaps Paul can answer first.

Paul Bivand:  Thank you. Our assessment, broadly, is that we think it will make it easier for people to understand whether or not they are better off in work. Previous work for a range of organisations has shown that, under the current benefit system, most people are better off in work. The question is whether or not they believe that they are better off in work. The combination of housing benefit, tax credits and the main DWP workless benefits is difficult to navigate. The universal credit promises to be very much simpler, and people should be able to understand whether they would be better off in work without having to make complex calculations. However, it is still complex to some extent. Unfortunately—I do think it is unfortunate—the decision on council tax benefit adds an extra level of complexity that we would rather not have.
We are currently working—you may hear something a little later from people working for London Councils—on the impact of what we know about the universal credit. At the moment, we have been looking at the impact of current benefit changes. However, we are broadly positive and we think that it was a Gordian knot that needed cutting.

James Gray: Mr Goulden, did you have something to say?

Chris Goulden:  I wanted to say something about the sources of information on which you can base an answer to that question. You have the impact assessment from the DWP and the work by the IFS. Both rely on an econometric approach to work incentives, and I think that you have to incorporate other research that looks at what work incentives are salient to people who are currently on benefits or in low-paid work. I am not sure that they are exactly the same thing. The qualitative research that we have funded has asked people on the margins of low-paid work what they look for in jobs and so on, and it shows that they have a very high work ethic. I think, therefore, that some assumptions about what work incentives are doing to people in the econometric models may not be playing out on the ground.

Q 46

John Glen: Can you say more about that sort of work—that qualitative research, the number of people, and so on—so that we can get a picture of how valid that assertion is?

Chris Goulden:  The number of people is not the thing you look at with qualitative research. It is more about understanding what—

Q 47

John Glen: It would help if you explained how representative it is and where it comes from, because it is a bold statement to make.

Chris Goulden:  Well, it is qualitative research, so it tries to understand and develop a theory about how people behave. That is different to quantitative work, which tests those theories on a broader basis. It is wrong to talk of it as representative, in that sense, because you are trying to develop a theory of how people behave. The people that we talk to in our research present a very strong work ethic, and that is represented in lots of studies around the country over the past 10 or 20 years. It is not a matter of it being a number of people; it is based on talking to people and representing what they tell us. Therefore, if you want representation, you have to look at quantitative work. What I am saying is that you should not prioritise one over the other; you have to look at both together. The danger is that there is too much emphasis on financial work incentives, at the risk of looking less at what are salient work incentives to people who are in that situation.
Having said that, because the universal credit will make it easier for people to do low hours work, and possibly make it easier for them to do low-paid work, there is a chance that in-work poverty could rise. If more people are going from benefits into low hours, low-paid work, they will not be workless, obviously, but they may still not be earning enough to take them over the poverty line. There is an issue in the UK labour market with a dual approach, where there is one sector which very much has low-paid, insecure jobs. Trying to get from that sector into the more mainstream sector is quite difficult, and that is linked to geographical patterns of worklessness and where the jobs are.
The other side of the coin to the Bill is the labour market, which is the crucial aspect that needs to be addressed. I realise that that is not part of the Bill itself, but thinking about how the issues that the Bill tries to address will actually play out in reality, it needs to be strongly linked to labour market growth policies and skills policies. If those are not joined up, you will have one part of the puzzle that is completed, while the rest of it is not.

Q 48

Karen Buck: May I start with a question to Mr Bivand? I do not know whether you were here earlier, but we heard, particularly from the Institute for Fiscal Studies, about the potential winners and losers from the universal credit—who they are, and what their characteristics are. I believe that you have done some research, and I wonder whether you could tell us a little about your analysis of who will gain and who will lose.

Paul Bivand:  Yes, we have done some research on those things. One thing that we are particularly concerned about is that we cannot define who will win and who will lose to quite the extent that we would want to, because there are things that are left open at this stage. I am thinking particularly about child care at this point. We do not know whether the child care regime will be more or less supportive of parents working than the previous one. We have very little clarity on that. There is a danger, given the total budget allocated, that things could go the wrong way. Depending on the regulations and the way in which it is managed and set out, it could possibly go the other way. We have not gone into the same level of detail as the IFS. We are more concerned about the dynamics of things.
One of the things that I should probably have mentioned earlier is that we are particularly concerned about in-work costs, which the standard better-off-in-work calculations tend to ignore. It is not just cost, but time. Travel costs are a very significant factor. People may feel that they will not be better off because they cannot actually get to work within a budget or the money that they earn gets taken away by travel costs and other associated work costs.

Q 49

Karen Buck: May I ask a quick question of Kate Wareing or Mr Goulden? Substantial cuts worth some £18 billion in various social security benefits are working their way through the system. Some of those cuts, including in housing and possibly child care, could have the perverse consequence of making the tapers better, because they will not be included in the calculations, but they could leave people with a larger cost and, therefore, potentially push them into poverty. Is that something that we should be concerned about and are there ways of monitoring it more closely or finding a way round it?

Kate Wareing:  Housing costs and child care costs are a huge proportion of many people’s budgets. Those two interfaces are the most critical. The changes that are proposed to the percentage of rent that housing benefit will cover are completely critical to whether or not people can afford to meet their basic living costs. The changes that are proposed to housing benefit and the way in which they interface with universal credit are very worrying, particularly as housing benefit will cover a smaller proportion of people’s actual housing costs in the future. We do not know at the moment how universal credit will work on child care costs. We do not know exactly what proportion of people’s child care costs it will cover.
Those are the two areas that run the real risk of undermining the idea of work incentives. I completely support the principle of universal credit and trying to make it possible for people to take work that it is not logical for them to take at the moment. If you are on a very low income, your overriding concern is your security of income. Universal credit will make it more possible for people to take work, which they are not secure in taking at the moment. To make sure that people remain in that position, by giving them security over their housing costs and clarity over how their child care costs will be covered, is fundamental.

James Gray: Ms Nash, have you something to add to that?

Vicki Nash:  Yes. From a mental health perspective, we are very supportive of the principle of trying to make a system that is as easy as possible to navigate. We do not think that the changes to universal credit will be the silver bullet to make a dramatic impact on the number of people with mental health problems going back into work. It is important to make that point when discussing the long-term goal of getting people back into work. The changes deal with a number of issues related to providing that tailored support to get people back into the workplace. Equally, they have to tackle the existing employee discrimination that is live and present in our society.

Q 50

Charlie Elphicke: A lot of the comments that have been made on poverty seem to be long on emotion and short on figures. Have any of the witnesses conducted any analysis of the DWP’s universal credit impact assessment? In particular, it looks as though the two bottom deciles will have an increase in entitlement to £5.40 a week. According to the impact assessment, universal credit is sharply focused on the least-owning deciles. The losers seem to be rich people beyond decile 6. Will you comment on that and base your comments on detailed evidence and numbers, rather than on pure emotion?

Chris Goulden:  The impact assessment figures look plausible. They are based on extra money for people who are receiving benefit who tend to be at the bottom of the income distribution, and that is based on increasing the take-up of benefits—there is a low take-up on certain benefits at the moment. Both those will be progressive, in the parlance. We are funding IFS to look at the impact of universal credit on poverty up to 2020, which we hope will come out in the summer. I do not know whether Mike Brewer mentioned that work earlier. So we will be number crunching to look at what we think will be the impact on poverty. I agree that it will be beneficial if it does what it says it will do, but that relies on jobs being available that take people out of poverty when they go from benefits into work.
Paul raised another issue that is important in terms of work incentives. There are extra costs of working that people need to take into account—that is what the work incentive calculation consists of—but it might be worth their while taking a hit in the shorter term if the job will lead to higher wages and a more secure future in the longer term. Thought needs to be given in the Bill about how conditionality can be used in a positive way to try to encourage that route out of poverty, so that people do not get stuck in insecure, low-paid work. There is a risk that the Bill looks at work as the end point, and not what happens to people’s careers and earning progression once they go off benefits.

Kate Wareing:  We have looked at another element of the impact assessment—not the extent to which it is economically progressive but the impact on women and gender. One particular concern that we have is the move to a single payment per household, and the decision-making structures around that—how a household decides who the payment is made to. We think it is an unsafe assumption that the income will be fairly distributed within households. About 70% or 80% of household payments are currently claimed by men, and we have evidence that shows that it is not safe to assume that they are then spent equally to the benefit of all members of the household. Basically, it matters who payments are made to. If they are made to women, they are far more likely to be spent on children than if they are made to men. That is the evidence base.
One thing that we really want to encourage is some very careful thinking and some proper scrutiny of the impact of the payment structure on women, and what that payment structure will mean in terms of women’s dependence within households and, potentially, their poverty within households.

Q 51

Jane Ellison: This is a quick but more general question: I would be interested to know whether any of you believes that poverty is ever linked to the choices that people make in life.

Chris Goulden:  Yes. Is there something underlying the question?

Q 52

Jane Ellison: No. In a couple of the submissions, there is almost a sense that poverty is something that happens externally and that poverty is not the result of the choices that people make. When you were making the point about low pay and summing up some of the issues around the things that lead to it, you did not mention education and the link between poor performance in education and ending up in low-paid work, which surprised me. I am interested to explore the extent to which you see choices as part of the process.

Chris Goulden:  People make choices. They are constrained by their environment, but they definitely have choices, although they may not be aware of the full set of choices that is available to them. I think that the universal credit provides an opportunity to expand those horizons through bringing skills and education into the welfare-to-work process. I think that there will be an opportunity to look at what choices people think they have.

Q 53

Priti Patel: This is almost a follow-up, in terms of choices and the impact of poverty and welfare. Do you all have a view on whether the universal credit will tackle welfare dependency to the extent that it will actually address the whole issue of intergenerational dependency on benefits and welfare?

Kate Wareing:  I am very concerned about the assumption that underlies that question. This follows on from something that one of your previous panellists said and also from what Chris said. I believe very strongly that work incentives are not the root of the issue for the majority of the people who are on benefits. The universal credit, which is trying very hard to sort out our current benefit system, will make it far more rational and secure for people to take the sort of work that is often available to them. At the moment, it is a rational decision not to take short-term, insecure work because of the way that the benefits system is structured. Once that has been resolved, it will be much easier to see whether there is an issue with people’s actual motivation to take work.
There is a distrust of qualitative evidence bases, but I think that the qualitative evidence base is worth scrutiny. It shows that there are very complex and often very rational reasons why people are not taking up the work that is available at the moment. The real benefit of universal credit is that it will change that, and that is the really important thing.
I am very worried about the conditionality regime for two reasons. First, I am opposed to anyone being left in destitution in the UK. Secondly, the conditionality regime will capture and penalise an awful lot of people who it is not designed to penalise. When I spoke to Lord Freud, he said that he believed that the only people who would fall foul of conditionality regimes were those who were working informally. I think that it will also hit people with mental health problems, those who do not have one secure address and who miss letters and all sorts of other people who it is not intended to hit. We will leave some of the most vulnerable people in our country with no incomes. We will then have to pick up the pieces of those decisions, in terms of the impact on their children, their communities and them as individuals.

Q 54

Sheila Gilmore: I want to follow up on the impact of getting into work and poverty. There seems to be an assumption—several panellists have talked about people being able to get up a career ladder—when the reality for many people is that the available jobs are not career-ladder jobs. They are jobs in local shops or whatever, where you are on the cash desk and you will be on the cash desk for a long time. Do you think that there is any benefit, as a reciprocation for conditionality, in part of the contract being to assist people with training and skills; otherwise they will be in those jobs for a long, long time?

Paul Bivand:  The difficulty that I have with that is that the more you do the research on it, the less the impact of skills training appears to be. In fact, most research that we have seen recently shows that basic skills training has a negative impact on employment chances and earning chances. That is international, in the US as well as the UK. Mandating people to do things that do not help is not a good idea. We recognise the issue of the casualisation of work at the bottom end.
In terms of how the work programme is being funded, it recognises sustained work as being spells of four weeks, of which there can be a substantial number of spells that are funded and regarded as a job that a provider gets funds for. I think that it is the right approach to try not to see it as a single job, but to see moving from one job to another without troubling the DWP as the aim of moving people from welfare to work. People see a sustained job as being a single sustained job, but we do not necessarily see it as that. It can be a process of moving from one job to another without claiming benefits in between. People will claim benefits in between, and they need help to go straight back in.
On the financial question, we think that it is not purely the small monetary difference between being in work and out of work that makes the difference. It is the monetary difference, plus the support that is given by Jobcentre Plus and providers and the entire system, including conditionality. We are worried about the extent to which conditionality goes beyond a tipping point, because it means that people lose the will to engage. Conditionality works up to a point, but beyond that point, considerable numbers of people disengage. We have some of that with the large numbers of people who are unemployed under the International Labour Organisation definition but not claiming benefits. They are therefore not receiving help. That is a worry to us.

James Gray: Keeping an eye on the clock, I am keen to move on swiftly.

Q 55

Ian Paisley Jnr: In terms of the evidence basis for the decisions that the decision maker will make on assessments, is there not a risk that we might create an inaccurate measurement that gives a snapshot of a claimant at a time and place, as opposed to an assessment based on the long-term measurement of a claimant’s needs, condition and highs and lows? The person best placed to make such assessments and draw that sort of evidence is the claimant’s GP. Would you agree with that?

Vicki Nash:  Absolutely. You would want to make an assessment over a period of time, particularly for people with mental health problems, some of which can involve real highs and lows. For someone with a bipolar disorder the highs and lows are extreme, so it is important not to base an assessment just on a snapshot of how someone reacted on a particular day. That is part of the problem that we have had with the WCA that has gone on for a while, as have fears about the changes to DLA.
On the point about whether the GP is the best-placed person to make such a decision, in principle that seems a sensible approach to take, but we know that GPs are inherently not very good at spotting the signs and symptoms of mental health problems and that they do not feel confident about how to support someone with mental health problems. There are some exceptions to the rule, but generally there is a real lack of understanding about mental health. Obviously, that does not just have an impact on the welfare and benefit side, and the changes proposed in the health and social care systems at the moment are of significant concern. How do we ensure that GPs have expertise in commissioning services that are appropriate for such people and supporting them if they are trying to get back into work?

Q 56

Ian Paisley Jnr: I am worried that you are indicting about 80% of GPs across the country. In my experience, GPs are quite good at those sorts of assessments, but you are right to say there are gaps.

Vicki Nash:  Absolutely.

Ian Paisley Jnr: Is that not about training the person who is making the long-term assessment? Again, I stress that that will probably be the GP who sees a person regularly, repeatedly over a period of time, and knows the claimant best.

Vicki Nash:  In some instances, the GP will be the main source of contact, but some people with mental health problems may have far more interaction with secondary services, community mental health teams or their psychiatrist. It is a bit more complicated in that field.

Andy Rickell:  The points that you have made about the assessment are absolutely valid in terms of the issues we have been thinking about. One point is certainly that the assessment will not be a snapshot in time, and the assessment of the person’s experiences over an extended period will be sufficiently large to capture the variation in need. Sometimes the best person can be the GP. We have said that the claimant can provide whatever evidence they find is best to justify their situation. The issue is about finding independent evidence for themselves. That could come from a number of sources—the GP might be one, secondary services might be another. It could be anything that helps to get an accurate understanding of the reality of the situation, so that the assessment can be fair.

James Gray: We will not get through all the issues in the 14 minutes or so available to us, so perhaps I can ask that both questions and answers be swift and to the point.

Q 57

Anas Sarwar: Universal credit will change the way that benefits are claimed and paid, and I wonder if you can outline what you think some of the key advantages will be, and some of the potential pitfalls.

Chris Goulden:  A key advantage is the extra disregard. We were looking before at the issue of people who are worried about taking jobs because they do not want to start claiming again, and the disregard will get round some of that. They will have a kind of buffer, and will be claiming in-work and out-of-work benefits through the same system. The principles behind the universal credit will increase take-up, understanding and simplification of the system.

Kate Wareing:  A key advantage is that it will enable people to take the sorts of work that it is not rational for them to take now, and that should reduce the benefits trap. Key disadvantages are the move to a monthly payment and no flexibility around that, which will leave a lot of families very short of money at the end of the month, and the linking of that benefit payment to CPI, which will increase the gap between people on benefits and people in work in terms of how much money they have. That does not reflect the inflationary pressures that people on low incomes face in terms of fuel and food prices.

Paul Bivand:  In addition, the IT system needs to work properly. The internet claiming is working pretty well for JSA claimants, but not for everyone. The intention is that that will be the dominant system, and we need to make sure it works and can respond quickly to all the changes in circumstances. Those are the main issues.

James Gray: Thank you.

Q 58

Priti Patel: We spoke earlier with our previous panel about error and administration in the current system. We would welcome some views from you all about, for example, overpayments of tax credits and whether you think that the universal credit will avoid that.

Kate Wareing:  One of the main issues of fraud in the system at the moment is people not declaring relationships. One of the main reasons for that is because they fear making themselves economically dependent—women, often, on a man who is at that point not the best known prospect. Again, with a shift to universal credit and a shift to one payment per household, the risk for that woman is going to increase. If she invites a man to form a relationship with her, the risk to her entire income, now, rather than just the housing-related component, is going to grow. When we are looking at the payment structure, we need to think about what that looks like from the perspective of an individual making a choice. If that woman is entering into a relationship, her choice will become one of making herself totally economically reliant on her new partner, or not declaring that relationship. It is upping the game in terms of what that system looks like from her perspective.

Q 59

Priti Patel: May I just put across to the panel that as Members of Parliament many of us deal with the whole issue of overpayments relating to tax credit, which has been in casework and which shows a system failure as well in the administrative path? Do you specifically think that universal credit will help to address some of those problems?

Kate Wareing:  It is down to administration, and it is down to the way in which that system is implemented, so you might be better placed to answer that, Paul.

Paul Bivand:  The answer is basically yes, in having a simplified system that combines those issues and is not on an annual basis.
Regarding a lot of the fraud that we have talked about relating to cohabitation, one of the relevant issues is the extent to which the JSA system promotes that. If you are a man in a casual job with a girlfriend and a baby, and you are a construction labourer going from one site to another, you claim JSA in between and your housing benefit. You have waiting days for JSA. You have a housing benefit claim that cuts in, and when you are in work you may have an in-work housing benefit claim. Those systems do not work together if you have a family and children, because you will end up with the housing benefit administration not working in time, and you will end up with large numbers of waiting days for your JSA claim.
We need the system to be able to manage the situation for that sort of family, so that they can claim legitimately. The temptation in those circumstances is for the man to disappear from any claim. We do not know the extent to which that happens, but we have some idea that it might be occurring. There is a fraud, but in a sense it is a fraud that is promulgated by the system. I am hoping that UC should, in principle, provide some ways of handling this. I am not sure, however, because a lot of this is regulations about things such as waiting days for those claiming unemployment-related UC, and the extent to which the housing element will work its changes in circumstances as quickly as the JSA one does. There is an awful lot of detail about administration and the IT working, but I think that that system actually promotes a nominal fraud, because the system does not work for families—that is the JSA system and the HB administration together.

Vicki Nash:  I think it is important to put the question of fraud into a broader context. We are talking about universal credit, but if you take the example of DLA, only 0.5% of claims are fraudulent and there is 2% of error. The lesson to learn from that, and where we have other problems in the welfare system, is not to develop a system that is built around the very small minority of cases where things do not work, and instead to focus on the majority. I think that that is why we have a real problem with the welfare system as it stands at the moment, because it really is quite unfair and ineffective for the majority. Take, for example, the large numbers of people with mental health problems having to struggle through the system at the moment. It simply does not work, and the sanctions do not seem to work to get people back into the workplace. In fact, they exacerbate people’s stress and anxiety. When the Burnley and Aberdeen trials were announced for the work capability assessment, we saw a peak in our information lines, in terms of the cause of people experiencing distress and, to some extent, suicidal thoughts. Those people are very frightened at the moment and we are trying to support them as much as possible.
Coming back to your point about the universal credit, again we must ensure that we get a system that works for the majority and not for the very small minority, who obviously do not do us any favours in terms of the media coverage around this issue at the moment.

Q 60

Sarah Newton: I am very interested in some of the comments on conditionality. First of all, Kate, I think that I speak for everyone here in saying that none of us wants to see people destitute in the way that you described and I cannot accept that increased destitution will be a consequence of these reforms. Chris, you mentioned conditionality in a more positive way. You think that there could be some advantages to it. Could you elaborate on that?

Chris Goulden:  Yes. We have done a research review of the impact of sanctions internationally and it shows that using sanctions gets your benefits bill down but the research does not really show what happens to people after they come off benefits. An interesting study was done in Switzerland, which tracked people after they came off benefits. It found that people who had been sanctioned went into less secure and less well-paid jobs than people who had not been sanctioned.
So there is an issue. Sanctions have got a bad press. There is a chance here to use conditionality in a more positive way, as you say, to encourage people to learn skills and improve their prospects. Conditionality and sanctions should be used for a better job match, and not just for punishing people for not complying with the system.

Q 61

Margaret Curran: May I ask about the disability element of universal credit? The Government are working up a system to look at how disability premiums—or whatever they will be called—fit into that universal credit. Do you have views about that? What would you recommend to the Government as they look at this issue?

Vicki Nash:  Going back to the principles, we support the principles behind universal credit but we are slightly worried about how the disability premiums will fit in with it. We have been working closely with the CAB. The CAB has essentially been leading some of the work on this issue and so we would defer to its expertise in terms of making it work from a broader perspective. But obviously we are concerned about that issue.

Andy Rickell:  It would be good to bring all those disability elements into one element, so that you have one gateway in which the disability element of the universal credit is obtained. Potentially we are then into another assessment process and it would be good if we take the opportunity to get an assessment process that is fit for purpose and if possible to bury the work capability assessment, given that there is an opportunity to do so. There is something there about thinking through a process that, again, is as streamlined as possible for disabled people.

Q 62

Margaret Curran: Are you worried about the potential loss of the severe disablement allowance? Have you got evidence or case studies of where you think people might be winners or losers, depending on what the Government do with this?

Vicki Nash:  We have not yet, but it is obviously an area that we will keep a close eye on in the future.

Q 63

Harriett Baldwin: A lot of benefits are passported, for example prescriptions, spectacles, concessionary travel in some areas, potentially help with university tuition fees, and free school meals, which is a very important benefit as it also triggers the pupil premium. Do the members of the panel have any suggestions about how the Government can design a system for passported benefits under the universal credit that is fair, that does not create disincentives and that is very simple to administer?

Kate Wareing:  I would be very worried if prescriptions and free school meals were to become a cash amount that was built into a weekly budget, and tailored out as part of universal credit. The reason is that, particularly with prescriptions, it is actually a lot of money to hit in a week. If you need two items and you suddenly find that that is the amount that you need to pay out of an incredibly tight weekly income, you are very likely to decide not to redeem those prescriptions and to deny yourself medical treatment.
So we need to retain a way of enabling people on very low incomes to receive free prescriptions, particularly because it is not a regular sort of expenditure. Lord Freud has talked about a waterfall, rather than a cliff edge. I completely see the problem of having a passport to benefits with a cliff edge attached. The other side to that, though, is that we need a system that means people do not have to face the choice of whether they can afford to meet such a large expense if it falls in a particular week, I would leave prescription charges outside of the universal credit, and I think they should remain passported in some way. In terms of free school meals, I think the waterfall approach that has been talked about has a lot of merit. It will enable people to budget in a way that they can handle, and it will mean that kids still get fed at lunchtime.

James Gray: Very briefly, Mr Bivand, because we are running out of time.

Paul Bivand:  I am concerned about the extent to which passported benefits are currently a barrier to work. The loss of free school meals are effectively an additional cost for people moving into work.
Particularly in our work with homeless people, we see people with both housing benefit issues and a history of substance abuse and other such problems. When people move into work in that context and become liable for prescription charges, it is actually a very severe issue. People in such circumstances, generally speaking, are not in a position to buy a season ticket for their prescription charges. I do not have a solution, unfortunately, but I think it is something that Ministers need to ensure they negotiate with the Department of Health.

Q 64

Sheila Gilmore: In the brief time that we have left, are there any comments on the proposals for the social fund and how it will be transferred from central Government to local government? How will that impact on families?

Chris Goulden:  There is an issue. Going back to the earlier point, it can only help to have one agency administering the benefits, rather than three or four. Council tax and, to some extent, the social fund seem to be entirely against the fundamental principle of the Bill that there should be a simple one-stop shop for your benefits. So devolution of council tax and the social fund to local authorities does not seem to fit with the principles behind the Bill. I know it is being looked at, but I would add my own thoughts to that.

Q 65

Jane Ellison: A quick question: do you agree with the principle of a benefits cap and linking it to the average weekly earnings of a low-income working household?

Chris Goulden:  It is fundamentally unfair, because it does not take account of the size of your family and, therefore, what your needs are. Rather than having a link to average earnings, your needs are determined by your situation. I can see the rationale for a cap, but I think it would be better if it related more to people’s real needs, rather than being an arbitrary, “This is what the average earnings in society are.”

Kate Wareing:  I think what drives a large percentage of the cost of a benefit package is housing costs. Such costs give someone access to a property; they do not give that person a large amount of money in benefits as such. I do not think a cap is a sensible approach. It will have a significant impact on larger families. I am particularly worried about the uncertainty that there still is in the Bill about whether or not child benefit will come within that cap, because it will have an additional significant detrimental impact on large households, which the current modelling shows are likely to hit the cap anyway.

James Gray: As we approach 1 o’clock, we have satisfactorily reached the end of a particularly useful evidence session. I apologise to those people whom I have not been able to call. I thank the panel in particular for your extremely useful and enlightening evidence—it really has been exceptionally helpful—and I am most grateful to you for taking the time and the trouble to come to Parliament to give it.

Ordered, That further consideration be now adjourned. —(Miss Chloe Smith.)

Adjourned till this day at Four o’clock.